UBA rated ‘Buy’ on higher revenue expectations
June 18 (THEWILL) – For fiscal 2022, equity analysts at Meristem Securities Limited have forecast healthy growth for United Bank for Africa (UBA) Plc, anchored on the group’s strong digital earnings performance.
The bank’s stock is rated Buy with a price target set at N9.15, offering upside potential of 18.06% at a benchmark market price of N7.75. According to its unaudited financials for the first three months, UBA Plc saw its gross profit jump 18.39% year-on-year to N183.91 billion.
This performance is the result of an increase in both funded and unfunded revenue streams, according to Meristem analysts’ outlook on the pan-African financial giant.
The investment firm explained that UBA’s funded revenue grew 15.10% year-on-year to N124.86 billion during the reporting period, while fee-based revenue increased by significantly by 25.55% to reach N58.83 billion.
Analysts found that inflationary pressure in operating regions increased the group’s operating costs by 20.46% to N77.64 billion. Consequently, the cost/income ratio increased slightly by 127 basis points to 61.67% between the first quarter of 2021 and 2022.
Despite the pressures on the operating environment, UBA Plc. recorded a 9.73% year-on-year increase in net income, with after-tax profit printed at N41.87 billion.
Balancing its outlook for the year, Meristem suggests that the impressive expansion in sales and net income is positive for the outlook for the year. At the same time, the company said rising operating costs and cost-to-revenue ratio were downside risks.
As such, Meristem Securities analysts pointed out that they expect unfunded revenue to drive gross profit and cost control measures to drive net income in 2022.
“We maintain our gross profit and net profit guidance at N722.14 billion and N137.74 billion, respectively, in 2022,” the analysts noted in the review.
Nigerian multi-asset investment firm CardinalStone Partners Limited has raised UBA Plc’s price target to N10.94 following an upward adjustment to the pan-African lender’s profit outlook for the year .
The pan-African lender is placed on the buy rating of CardinalStone Securities Limited. At the benchmark market price of N7.75 kobo, analysts said in the stock report that Ticker:UBA is trading at a steep discount to its 5-year average price ratio.
In the company’s projection for the year, analysts see UBA’s pan-African footprint as a factor supporting the group’s earnings performance in fiscal year 2022. Analysts say a higher return would curb margin contraction in the current year, noting that despite asset returns moderating slightly in the first quarter of 2022, they remain constructive on UBA’s net interest margin (NIM).
For the current year, equity analysts say they expect UBA Group’s net interest margin to improve by 20 basis points from the level in fiscal 2021.
“Our positive view on NIMs is built around the monetary policy committee-induced rise in interest rates, which is likely to feed through to asset returns. The sustained rise in interest-earning assets (CAGR over 5 years of 14.2%) bodes well for interest income and the high proportion of CASA in the deposit mix should limit the negative impact of higher interest rates.”